University of Washington, Seattle, is restructuring its two 403(b) plans to reduce fees, cut redundant investment options and remove options that underperform their benchmarks, said Kathleen Dwyer, executive director of benefits.
The plans, with a total of $4.14 billion in assets, will have open architecture, eliminating the reliance of participants on providers' brand-name products.
“It was important to us that we brand this as the University of Washington retirement plans,” said Ms. Dwyer. “We don't want any company telling us what fund we had to use. We were very clear about that in the RFP process” for a record keeper.
The restructuring will be effective Nov. 1.
Instead of hundreds of investments offered by four providers, the new lineup for both plans will feature a target-date series from Vanguard Group Inc.; a core group of 11 active and eight passive funds; an “annuity window” with five options from TIAA-CREF retained from the existing lineup; and a new self-directed mutual fund window with more than 3,000 funds.
Fidelity Investments, Boston, will be sole record keeper and will manage the mutual fund window. Previously, Fidelity had been one of four.
All 164 options provided by Fidelity and all 23 provided by Calvert Investments Inc. no longer will be offered. Many of the options from Vanguard also will be dropped, but Pensions & Investments was not able to determine how many.
The new investment structure will “serve as a communications tool,” matching participants' investing skills and interests with the investment choices, Ms. Dwyer said. “Some are very sophisticated. Some don't have much time to manage their investments.”
The current structure is “challenging” because participants investing with several providers have trouble keeping track of their overall asset allocations and their fees, Ms. Dwyer said.
“We wanted people not to feel so intimidated” in making investment choices, she added.
The University of Washington restructuring is part of a trend in 403(b) consolidations, triggered in part by Internal Revenue Service regulations, most of which took effect in 2009, that require sponsors to provide greater oversight and investment monitoring of their 403(b) plans.
Ms. Dwyer said university officials had been looking at ways to change the plan design and investments for three to four years, with intensive work starting about 18 months ago. Plan officials met with university executives, staff and faculty and the librarians' association “so people would understand what we were doing,” she said.
“We knew we would be shaking up people's worlds because they had been in some funds for a long time.”
The university hired Hewitt EnnisKnupp, Lincolnshire, Ill., in March 2010, to advise on the consolidation. “It was critical for us to get data and information on best practices,” Ms. Dwyer said. “It was better to rely on a consultant than on the fund providers.”